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The Constitution and the Henry Tax Review

Written by Professor David Flint AM

Friday, 30 April 2010

One of the hidden costs of these endless republican and flag changing campaigns is that they distract from a proper consideration of those constitutional issues which call for a solution. We have instead spent the better part of two decades on an elite quest for an unattainable politicians’ republic and a squabble about which beach towel design should replace our Australian National Flag.

Now is the time to be serious and face the real problems relating to the governance of our indissoluble Federal Commonwealth under the Crown. One is the way the States have been made dependent on the Federal Government and their responsibilities encroached on without the people agreeing to constitutional change. The solution is not in abolishing the States; it is in restoring what the Queensland Treasurer, Andrew Fraser , identifies as their financial sovereignty.

The people of the States agreed in 1900 to grant only limited powers to the Federal Parliament. They have more often than not refused to increase these. The clear will of the people expressed by referendums ought to be accepted, although in the Workchoices decision the High Court declined to do so.

...Henry tax review...

This problem will be highlighted when the Henry Tax Review is eventually released on Sunday, 2 May, 2010, with the opposition and media receiving a generous four hours’ notice. The government has been criticised for sitting on this so long and indeed, having it undertaken by a Head of Treasury who would normally advise them on a report from such a review. It is a curious way to use a departmental head.

More importantly, it is a principle of Federalism that the States should be essentially financially dependent on the voters who put them there and not on the Federal Government. This is so that their voters can hold them to account for the way in which they have managed the taxes which they have imposed on them.

The politicians, State and Federal, Labor and Coalition, as well as some former High Court judges have managed to obfuscate the accountability and responsibility of both levels of government.

It is undeniable that of all federations, the Australian States are the most dependent on the Federal Government.

[Federation inaugurated...the States were to be fiscally sovereign ]

The result is confusion, a blame game which will never end, and now, some exceptionally poor performing State governments. Western Australia with Queensland is now being eyed by Canberra as the goose which can lay the golden egg to provide even more money for Canberra to spend.

...Grants Commission and WA...

As The Australian’sEconomics Editor Michael Stuchbury says in “Canberra tries to pluck mining states' golden goose,” (27/4) the latest Grants Commission report means Western Australia’s share of the GST will fall by $222 million, or nearly $100 a person, next year. Premier Colin Barnett argues that the State will be $1.5bn a year worse off than if the GST were divided up on an equal per capita basis . They keep only 68c in the GST dollar; he wants a floor of 75c in the GST dollar for Western Australia.

In the recent negotiations over hospital funding, the States asked to see the Henry Review before a decision was taken. The Federal government kept the report secret, but only Western Australia refused to hand over 30% of their GST as demanded by Prime Minister Rudd.

The fact is that the GST is a federal tax which Mr. Howard promised to the States because the High Court found several decades after Federation that the States had no power to tax goods, a decision which would have surprised the Founding Fathers.

In 1999 Mr. Rudd gave the Federal Parliament his assessment of the GST: “When the history of this Parliament, this nation and this century is written, 30 June, 1999, will be recorded as a day of fundamental injustice - an injustice which is real, an injustice which is not simply conjured up by the fleeting rhetoric of politicians, it will be recorded as the day when the social compact that has governed this nation for the last 100 years was torn up.”

...a federal resource rent tax?...

The Henry Review is predicted to propose the replacement of State mining royalties with a federal resource rent tax, which economists say is more efficient in retaining a greater proportion of our mineral wealth here. The model will be the Hawke government's 40 per cent offshore petroleum rent tax, which Canberra could impose as a result of a favourable High Court ruling. The Federal Government will claim they can better negotiate with international mining companies than the States can.

The Western Australians and Queenslanders will be unlikely to be willing to surrender their mining income. As we mentioned above, the Queensland Treasurer , Andrew Fraser has come out as a strong defender of the State's fiscal sovereignty.

Western Australia,Queensland and other States may argue that the Constitution does not allow the Commonwealth to impose such a tax, and that was the intention of the Founding Fathers. ACM of course has no position on these issues apart from a commitment to our indissoluble Federal Commonwealth under the Crown.

...another convention?...

This problem can be solved neither by the politicians nor by the judges nor by the experts. Only the people can. The solution may well lie through a convention on the 1998 model, but sitting longer.

That model was half elected, but this time postal voting should not be used. The remainder came from the leaders of the nine Parliaments, together with certain eminent persons. There were also some delegates chosen from otherwise underrepresented groups, for example, youth and Aboriginal and Torres Strait Islander Australians.

Such a convention could only be successful if the nominated component were chosen fairly as John Howard did in 1998, not by the sort of infantile gerrymander which so marred the 2020 Summit.